4 Ways for Seniors to Avoid a Massive 15% OAS Clawback

The 15% OAS clawback is a nuisance to seniors, but there are ways to minimize the sting.

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Generating too much net income in retirement trigger alarm bells in the lead tax agency. For the income year 2021, the Canada Revenue Agency (CRA) will levy a 15% recovery tax on retirees whose income exceeds the minimum income threshold of $79,845. Most seniors abhor the so-called Old Age Security (OAS) clawback because it’s a massive deduction on retirement benefits.

Assuming your net income goes beyond $129,260, the maximum income threshold, your OAS benefit is $0. The clawback is a nuisance, but there are legitimate ways to lessen the impact or avoid it altogether.

1. Pension splitting

The CRA allows pension splitting among spouses. A spouse earning more can transfer 50% of their income to a spouse earning less. This simple strategy works in lowering your net income. It should prevent you from entering the clawback zone or reaching the income threshold.

2.Withdraw from RRSP before 65

If you have a Registered Retirement Savings Account (RRSP), withdraw the funds before age 65. This withdrawal scheme could lower your income when you start OAS payments.

3. Utilize your TFSA

The Tax-Free Savings Account (TFSA) is an OAS clawback buster because all profits or gains inside the account don’t count as taxable income. Thus, any TFSA withdrawal is untouchable by the CRA.

4. Delay your OAS

The fourth option entails a bit of sacrifice. If you elect to defer your OAS instead of starting payments at 65, the benefit amount increases by 0.6% per month. Assuming you wait five years or until 70, the overall permanent increase is 36%.

Monthly dividends

Pembina Pipeline (TSX:PPL)(NYSE:PBA) is suitable in tax-advantaged accounts, particularly the TFSA. Apart from the high yield, the dividend payouts are monthly, not quarterly, like most dividend-paying companies. The share price is $39.94, while the dividend offer is 6.27% if you buy today.

The $21.97 billion company is a top-notch energy transportation and midstream service provider in North America. Pembina’s pipeline transportation, storage, terminal, and rail services are available to customers operating in key market hubs in Canada and the United States.

Pembina is also present in active, liquids-rich areas of the Western Canada Sedimentary Basin and Williston Basin. This segment is fully integrated with the other businesses. Likewise, its three strategic partnerships are foundations for future growth.


Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) rightfully belongs in the league of TSX’s blue-chip stocks. Canada’s third-largest bank is a wealth builder if you’re saving for retirement. The dividend history of this $94.23 billion bank dates back to 1832.

Performance-wise, the stock has rewarded investors with a 177,076.63% (16.65% CAGR) total return in 48.85 years.  Currently, BNS pays the highest dividend among the Big Banks. At $77.55 per share, you can partake of the lucrative 4.62% dividend. Based on analysts’ forecasts, the potential upside is 11.45% in the next 12 months.

BNS is ready to meet the challenges in the recovery phase. A report by Nikita Perevalov from Scotiabank Economics said Canada would undergo the strongest expansion in decades. Expect small- and medium-sized enterprises (SMEs) to look forward to recovery and new growth opportunities in the months ahead.

Worry less, sleep better

Canadian retirees can worry less and sleep better every tax season if they know how to avoid the 15% OAS clawback. The suggested approaches are legitimate and won’t get you in trouble with the CRA.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA and PEMBINA PIPELINE CORPORATION.

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